It has taken almost six months, but Microsoft has finally given the green light to low resolution (1024 x 768), 7in and 8in Windows 8 tablets. In related news, Microsoft’s Windows RT woes continue, with a supply chain rumour that RT will be merged with Blue, due to an almost complete lack of consumer interest. Both of these stories highlight just how poorly Microsoft is doing in the tablet market – which, if we factor in Windows Phone’s continued apathy, and the steady decline of the desktop PC market, is a rather big issue.

When Windows 8 and RT launched, Microsoft’s OEMs were forced to release devices with a minimum resolution of 1366 x 768. The theory behind this decree was that Metro apps need at least 1366 pixels of width to be usable side-by-side, using Windows 8′s “snap” feature.

In fact, if you install Windows 8 yourself on a device with less than 1366 x 768 resolution, you can no longer snap apps. The problem with this resolution, though, is that it’s no good for cheap-and-cheerful 7in and 8in tablets – which is unfortunate for Microsoft, because it is this section of the tablet market that is currently enjoying the most growth.

There is a reason that the iPad Mini has a 1024 x 768 display, and why the Kindle Fire HD and Nexus 7 have 1280 x 800 displays: Price and aspect ratio. Small tablets are doing well because they’re considerably cheaper than their 10in brethren (half the price in some cases), and because they’re comfortable to hold in both portrait and landscape orientation. The simple fact of the matter is that 1024 x 768 panels are cheaper than 1366 x 768, and because they’re lower resolution you can get away with less backlighting, weaker hardware, and a smaller battery.

If you have ever held a 10in 16:9 tablet (such as, well, any Windows 8 tablet), you will know that: (a) It’s painful to hold in one hand, and (b) Portrait mode is good for looking at photos of skyscrapers, and bad for everything else. 16:9 is good for two-handed landscape use, but that’s about it; for watching movies, and reading websites and eBooks, you really want 4:3 or 16:10.

This is why Microsoft has finally allowed OEMs to produce 1024 x 768 (4:3) Windows 8 tablets: It desperately needs a piece of the tablet market, and it seems like the 10in Windows 8 and RT tablets aren’t going to deliver as much of the market as Microsoft expected.

As an interesting aside, Microsoft has already hinted that the Surface and Surface Pro are just the beginning, and that there could be a Surface Mini on its way. The relaxed resolution requirement and the lower price point of small tablets would suggest that the Surface Mini will have a 1024 x 768 display.

Which brings us neatly onto Windows RT. If the upstream supply chain is to be believed, Microsoft will retire the Windows RT brand and merge it with Windows Blue – the upcoming service/feature pack for Windows 8. According to the source, general confusion around what Windows RT actually is, and Microsoft failing to communicate the differences between the ARM and x86 editions of Windows, has “significantly damaged demand” for Windows RT. This seems to fit with Samsung’s decision to not launch a Windows RT tablet in the US and to pull its Windows RT tablet out of several European markets citing a lack of demand.

As for how Windows RT will be merged with Blue, who knows. Windows RT is essentially already merged with Windows 8 – the codebases are the same, and they share compatibility with every Metro app. The only real difference is that Windows RT doesn’t support Desktop apps, and that’s more of an intrinsic issue with ARM than the operating system.

One exciting, outside possibility is that Windows RT will actually be retired. This might sound a bit stupid given the current lay of the land – ARM is still the better choice for mobile computing – but… what if Microsoft is already experimenting with Intel’s next-generation Atom parts? The upcoming Bay Trail Atom is a brand new, quad-core 22nm SoC that should blow the doors off every ARM chip on the market. It’s due out at the end of 2013… around the same time as Windows Blue…